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Deductibility of informal increases in alimony payments (MS Word)

Deductibility of informal increases in alimony payments (.pdf)

 

Deductibility of informal increases in alimony payments

Dear Reader:

You've recently received your final divorce decree and I know you are glad that experience is resolved. I'm just writing to ask you to let me know if you and your ex-spouse ever decide to change your responsibilities under that decree. In my experience it's not unusual for ex-spouses to later want to change their divorce payment arrangements, and a change could adversely affect your alimony deduction.

For example, say, a few years from now, for some reason (maybe to avoid going back to court), you agree to increase what you pay for alimony. Unfortunately, you can't just make additional payments and deduct them. A modification of your decree would be needed to make any additional payments or increases in spousal support or alimony deductible as alimony. Payments that you aren't legally obligated to make as alimony or spousal support under a currently effective written separation agreement or decree providing for spousal support or alimony cannot be deducted by you as alimony and aren't taxed to the recipient spouse. What's worse, those voluntary payments might also subject you to gift tax.

Even if you were to enter into a written, legally sufficient modification, you would want to be sure that the agreement, as modified, met all the Internal Revenue Code requirements for deduction. For example, it's important that all payments under a modified decree clearly end at the death of the recipient spouse, and that spousal support or alimony be clearly distinguished from child support. If additional payments are to be made during the first or second year in which you pay alimony or spousal support, and the total payment during any of these years is greater by more than than $15,000 than the payment to be made in the third year, you may have an inclusion in income during the third year.

We hope that your decree won't need to be modified in the future. But if you ever do contemplate any change, please remember to call us before agreeing to anything, so your deduction can be protected.